M/S. LADLI CONSTRUCTION CO. (P) LTD.versusPUNJAB POLICE HOUSING CORPN. LTD. AND ORS.

                         [2012] 4 S.C.R. 780


A           MIS. LADLI CONSTRUCTION CO. (P) LTD.
                                    v.
      PUNJAB POLICE HOUSING CORPN. LTD. AND ORS.
               (Civil Appeal No. 947 of 2006)

                         FEBRUARY 23, 2012
B
             [R.M. LODHA AND H.L. GOKHALE, JJ.)

          Arbitration Act, 1940 - ss. 5, 11, 12 and 30 - Arbitral award
    - Challenge to - Allegation of bias against the arbitrator -
C   Disputes arose out of contract between appellant-contractor
    and respondent-Corporation - Appellant moved the Court for
    appointment of arbitrator in terms of arbitration clause
    contained in the contract - Court ordered the Chief Engineer
    of respondent-corporation to act as arbitrator - Appellant did
D   not appear before the arbitrator and instead sent a letter
    intimating him that his appointment as arbitrator was not
    acceptable to it; and that it did not expect any justice and fair
    play from him - Thereafter, appellant made application ulss.5,
     11 and 12 of the Act for removal of the arbitrator - Meanwhile,
E   the arbitrator proceeded with the arbitration ex parte and
    passed the award - Appellant submitted objections u/s. 30
    alleging misconduct on the part of the arbitrator - Award,
    however, made rule of the court and decree passed in terms
    thereof - Justifiability - Held: The appellant-contractor
F   consciously agreed tor disputes between the parties to be
    referred for arbitration to the Chief Engineer of respondent-
    Corporation - Appellant moved the court for appointment of
    the Chief Engineer as arbitrator and then chose not to appear
    before him - What was the intervening event after the arbitrator
    was appointed at his instance that prompted him to ask the
G   arbitrator to recuse is not stated by the appellant - The award
    passed by the arbitrator also does not show that he
    misconducted in any manner in the proceedings - He gave
    full opportunity to the appellant to appear and put forth its case

H                                  780
  LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB                 781
         POLICE HOUSING CORPN. LTD.
but the appellant failed to avail of that opportunity - Since the A
parties entered into a contract knowing the role, authority or
power of the Chief Engineer in the affairs relating to the
contract but nevertheless agreed for him to be arbitrator and
named him in the agreement to adjudicate the disputels
between the parties, they stood bound by it unless a good or B
valid legal ground was made out for his exclusion - Except
raising vague and general objections that the arbitrator was
biased and had predisposition to decide against the
appellant, no materials, much less cogent materials, were
placed by the appellant to show bias of the arbitrator - The c
test of reasonable apprehension of bias in the mind of a
reasonable man was not satisfied in the factual situation - A
fanciful apprehension of bias was not enough - No reason for
interference under Article 136 of the Constitution - Natural
Justice - Bias.                                                   D
      Arbitration - Arbitral award - Challenge to - Allegation of
bias against the arbitrator - Plea that bias on the part of the
arbitrator was a/so reflected from the post arbitral conduct of
the arbitrator inasmuch as he contested instant appeal
(against the arbitral award being made rule of the court) and       E
filed affidavit in opposition - Held: Not tenable - What would
have the arbitrator done when he has been personally
impleaded as respondent in the appeal and the a/legations
of bias have been made against him - He was left with no
choice but to rebut the allegations by filing his affidavit - The   F
arbitrator did what any other person in his place would have
done in the circumstances.

    A contract was entered into between the appellant-
contractor and respondent-Corporation for construction              G
of 240 houses. The Contractor could not maintain the
time schedule and consequently the Corporation
rescinded the contract. Disputes arose between the
parties, whereupon the Contractor moved the court of
Sub Judge, First Class, for appointment of arbitrator in
                                                                    H
   782     SUPREME COURT REPORTS              [2012] 4 S.C.R.


A terms of Clause 25A of the contract. The Sub Judge, on
  May 13, 1992, ordered the Chief Engineer of the
  Corporation to act as an arbitrator as provided under
  Clause 25A of the agreement. Both the parties were
  permitted to file claim and counter claim before the
s arbitrator. In pursuance of the order dated May 13, 1992,
  the Corporation lodged its claim against the Contractor
  on June 15, 1992. The arbitrator - Chief Engineer of the
  Corporation - called upon the Contractor to appear before
  him on June 25, 1992. Thereafter also the arbitrator called
c upon the Contractor to appear before him. The
  Contractor, however, did not appear before the arbitrator
  and instead sent a letter on June 29, 1992 intimating him
  that his appointment as arbitrator was not acceptable to
  it; it did not expect any justice and fair play from him and
  he must refrain from acting as an arbitrator in the case.
0
  Thereafter, on July 24, 1992, the Contractor made an
  application before the Sub Judge, under Sections 5, 11
  and 12 of the Arbitration Act, 1940 for removal of the
  arbitrator. Meanwhile, as the Contractor did not appear
E before the arbitrator, the arbitrator proceeded with the
  arbitration ex parte and passed the award on August 18,
  1992. The Contractor submitted objections under Section
  30 of the 1940 Act alleging misconduct on the part of the
  arbitrator and also objected to the award being made rule
  of the court. The Sub Judge heard the two applications
F together - (i) application made by the Contractor for
  removal of the arbitrator and objections under Section 30,
  and (ii) application for making the award rule of the court
  - and by a common order dismissed the application made
  by the Contractor for removal of the arbitrator and made
G the award dated August 18, 1992 rule of the court and
  passed decree in terms thereof. The Contractor
  challenged the common order passed by the Sub Judge
  in appeal which was dismissed. The Contractor
  thereupon filed civil revision before the High Court which
H too was dismissed. Hence the present appeal.
  LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB            783
         POLICE HOUSING CORPN. LTD.
     The counsel for the Contractor contended before this     A
Court that the Contractor had reasonable apprehension
of bias on the part of the arbitrator as the action of
cancellation of contract was taken by the Executive
Engineer at the behest of the arbitrator as he was the
Chief Engineer of the Corporation. He referred to the         B
inspection made by the Chief Engineer along with other
Engineers of the Corporation on October 26, 1990 and the
opinion formed by the Chief Engineer on the basis of the
inspection that the work was not being carried out by the
Contractor in accord with the time schedule. He also          c
referred to conduct of the arbitral proceedings by the
arbitrator, particularly concluding the arbitration
proceedings in a short span of about 49 days and that
too when the Contractor's application for his removal was
pending before the Court. The counsel also referred to        D
post arbitral conduct of the arbitrator in contesting the
Appeal before this Court and filing counter affidavit in
opposition to the Appeal. He highlighted two aspects to
indicate that the arbitrator was biased, viz., (i) the
arbitration agreement was not placed before the
arbitrator, yet he commenced and concluded the arbitral       E
proceedings, and (ii) the award relating to unutilised
amount of secured advance which was not claimed by
the Corporation was passed.

    Dismissing the appeal, the Court                          F
     HELD:1. The appellant-Contractor consciously
agreed for the disputes between the parties to be referred
for arbitration to the Chief Engineer of the rei:apondent-
Corporation. The Contractor, at the time of agreement,        G
was in full knowledge of the fact that the Chief Engineer
had full control and supervision of all civil engineering
affairs of the Corporation, yet it agreed for resolution of
disputes between the parties by him as an arbitrator. It
is a fact that the Chief Engineer inspected the progress      H
of the work given to the Contractor along with other
   784     SUPREME COURT REPORTS              [2012] 4 S.C.R.


A engineers of the Corporation on October 26, 1990. In the
  course of inspection, the slow progress of the work was
  brought to the notice of the Contractor on that date.
  There was nothing unusual about it and, as a matter of
  fact, on the contract being terminated on May 8, 1991, it
B was the Contractor who made an application for
  appointment of arbitrator in terms of Clause 25A of the
  agreement as it was well aware that the inspection by the
  arbitrator did not disqualify him to be arbitrator. In the
  application for appointment of arbitrator, no allegation of
c any bias or hostility was made against the named
  arbitrator, i.e., Chief Engineer of the Corporation, rather
  the Contractor prayed for appointment of arbitrator in
  terms of the arbitration Clause 25A. When the application
  came up for consideration before the Sub Judge on May
  13, 1992, the advocate appearing for the Contractor also
0
  submitted for appointment of the arbitrator as named in
  the agreement. Before the Court, no allegation was made
  that the contract was terminated at the instance or behest
  of the Chief Engineer. These facts clearly show that no
  case of bias on the part of the Chief Engineer was
E pleaded or pressed by the Contractor before the court in
  the proceedings for appointment of the arbitrator. There
  is nothing to indicate that something happened after May
  13, 1992 which prompted the Contractor to write to the
  arbitrator on June 29, 1992 that it had lost faith in him.
F [Para 15) [793-B-H; 794-A]

      2. On May 13, 1992 while referring the disputes
  between the parties for arbitration as per Clause 25A of
  the agreement, the Contractor as well as the Corporation
G were permitted to file claim and counter claim before the
  arbitrator. The Corporation filed its claim against the
  Contractor on June 15, 1992. Upon receipt of the claim
  by the Corporation, the arbitrator called upon the
  Contractor to appear before him on June 25, 1992. The
H Contractor did not appear and instead sent a letter to the
  LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB             785
         POLICE HOUSING CORPN. LTD.

arbitrator on June 29, 1992 intimating him that his            A
appointment as arbitrator was not acceptable. No steps
were taken by the Contractor for removal of the arbitrator
immediately. The application for removal of the arbitrator
was made almost after 26 days (i.e. July 24, 1992).
Although the Contractor prayed before the Sub Judge for        B
stay of the proceedings before the arbitrator but it was
not successful in getting any such order on July 24, 1992,
or on the subsequent dates, namely, July 30, 1992,
August 3, 1992 and August 6, 1992 from the court. In the
absence of any stay order from the court and non-              c
appearance by the Contractor, the arbitrator was left with
no choice but to proceed ex parte and conclude the
arbitral proceedings. Merely because the award came to
be passed on August 18, 1992, i.e., a day before the next
date fixed before the Sub Judge, it cannot be said that        D
the arbitrator concluded the proceedings hastily or he
was biased. [Para 16] [794-B-F]

     3.1. The two aspects highlighted by the counsel for
the Contractor, regarding (i) non-availability of the
agreement before the arbitrator, and (ii) the award of         E
return of unutilised amount of secured advance by him,
as grounds of bias have no merit at all. [Para 17] [794-G]

     3.2. The order dated May 13, 1992 passed by the Sub
Judge shows that photocopy of the arbitration agreement        F
was produced before the court. AW1, who was examined
by the Corporation, in his deposition before the arbitrator,
has stated that photocopy of the agreement was
tendered to the arbitrator. Merely because copy of the
agreement was not found by the District Judge in the           G
record of the arbitral proceedings, it cannot be assumed
that copy of the agreement between the parties was not
placed for consideration before the arbitrator. [Para 18]
[794-H; 795-A-B]
    3.3. The arbitrator in his award awarded interest in       H
   786     SUPREME COURT REPORTS             [2012] 4 S.C.R.


A the sum of Rs. 1,40,150/- upto December 31, 1991 on the
  amount of secured advance paid to the Contractor for the
  period the amount remained unutilised although the
  Corporation had claimed the interest on that count in the
  sum of Rs. 1,69,878/-. In appeal preferred by the
B Contractor, the District Judge had held that the appellant
  was not been able to point out that the calculation of this
  amount as Rs. 1,40,150/- upto 31.12.1991 was wrong or
  incorrect and therefore, it would be na'ive to contend that
  the award was vague, evasive or non-committal. The
c above finding of the District Judge, Chandigarh, was not
  challenged by the Contractor before the High Court.
  Thus, there is no merit, at all, in the submission of the
  counsel for the Contractor that the arbitrator awarded
   unutilised secured advance for which there was no claim.
  In any case, this hardly leads to any inference of bias of
0
  the arbitrator. [Paras 19, 20, 21] [795-C, E; 796-A-C]

       4.1. The authority empowered to decide the dispute
  must be one without bias towards one side or the other
  in the dispute. There can hardly be any doubt about this
E fundamental principle of natural justice. In the instant
  case, none of the circumstances pointed out by the
  Contractor leads to any inference that the arbitrator had
  any bias, personal or otherwise. No doubt, bias may be
  found in variety of situations and each case, where bias
F of adjudicator is alleged, has to be seen in the context of
  its own facts but a fanciful apprehension of bias is not
  enough. [Para 22] [796-D-F]

       4.2. A contractor is bound by the contract if he has
G agreed to submit the disputes to the engineer for
  arbitration although he has to deal with such engineer
  under the contract. Insofar as the facts of the present
  case are concerned, the Contractor moved the court for
  appointment of the Chief Engineer as arbitrator and then
  chose not to appear before him. What was the
H intervening event after the arbitrator was appointed at his
  LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB              787
         POLICE HOUSING CORPN. LTD.
instance that prompted him to ask the arbitrator to recuse      A
is not stated by the Contractor. The Contractor was not
successful in getting any final or interim order in the
proceedings initiated by it for removal of the arbitrator.
The award passed by the arbitrator also does not show
that he misconducted in any manner in the proceedings.          B
He gave full opportunity to the Contractor to appear and
put forth its case but the Contractor failed to avail of that
opportunity. [Paras 24, 25] [797-F, G-H; 798-A-B]

     4.3.There is no justifiable circumstance on record         C
that enables the Contractor to escape from the bargain
that it made under the contract and have the disputes
resolved through the process other than agreed. Where
parties enter into a contract knowing the role, authority
or power of the Chief Engineer in the affairs relating to
the contract but nevertheless agree for him to be               D
arbitrator and name him in the agreement to adjudicate
the dispute/s between the parties, then they stand bound
by it unless a good or valid legal ground is made out for
his exclusion. [Paras 26, 29] [798-C; 800-E]
                                                                E
    4.4. Except raising the vague and general objections
that the arbitrator was biased and had predisposition to
decide against the Contractor, no materials, much less
cogent materials, have been placed by the Contractor to
show bias of the arbitrator. No sufficient reason appears       F
on record as to why the arbitrator should not have
proceeded with the arbitral proceedings. The test of
reasonable apprehension of bias in the mind of a
reaso"nable man is not satisfied in the factual situation.
[Para 30) [800-F-G]
                                                                G
     Gu/lapal/i Nageswara Rao and Others v. Andhra Pradesh
State Road Transport Corporation and Another l1959) Supp.
(1) SCR 319; The Secretary to the Government, Transport
Deptt., Madras v. Munuswamy Mudaliar and Others AIR 1988
SC 2232: 1988 Suppl. SCR 673 and S. Rajan v. State of           H
    788      SUPREME COURT REPORTS                 [2012] 4 S.C.R.


A Kera/a and another AIR 1992 SC 1918; 1992 (3) SCR 649 -
  relied on.

        Bristol Corporation v. John Aird & Co. (1911) 13] All E.R.
    1076 - referred to.

B      5. The counsel for the Contractor submitted that bias
  on the part of the arbitrator is also reflected from the fact
  that he has contested the present Appeal and filed the
  affidavit in opposition. However, what would have the
  arbitrator done when he has been personally impleaded
C as respondent in the Appeal and the allegations of bias
  have been made against him. He was left with no choice
  but to rebut the allegations by filing his affidavit. The
  arbitrator did what any other person in his place would
  have done in the circumstances. [Para 31] [800-H; 801-
D A-B]
         6. The view taken by the High Court does not suffer
    from any infirmity justifying interference under Article 136
    of the Constitution. [Para 32] [801-C]
E                        Case Law Reference:
          (1959) Supp. (1) SCR 319     relied on     Para 12
          (1911) 13] All E.R. 1076     referred to   Para 12,23

F         1988 Suppl. SCR 673          relied on     Para 27
          1992 (3) SCR 649             relied on     Para 28

         CIVIL APPELLATE JURISDICTION: Civil Appeal No .. 947
    of 2006.
G
        From the Judgment & Order dated 25.11.2002 of the High
    Court of Punjab & Haryana at Chandigarh in Civil Revision No.
    474 of 1999.

          Rajeev Sharma, Uddyam Mukherjee for the Appellant.
H
  LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB                 789
         POLICE HOUSING CORPN. LTD.
    Dr. Bairam Gupta, S. Janani, Suryanaryana Singh, Pragati       A
Neekhra, Dharmendra Kumar Singh for the Respondents.

    The Judgment of the Court was delivered by

     R.M. LODHA, J. 1. This Appeal, by special leave, arises
from the judgment and order dated November 25, 2002 passed         B
by the Punjab & Haryana High Court.

     2. The controversy arises in this way. A contract was
entered into between the appellant - M/s Ladli Construction Co.
(P) Ltd. (hereinafter referred to as 'the Contractor'), and the    C
respondent Nos. 1 and 2, namely, Punjab Police Housing
Corporation Limited and Executive Engineer (Civil), Punjab
Police Housing Corporation Limited (hereinafter referred to as
'the Corporation') for construction of 240 houses Type II-A at
Urban Estate, Ludhiana at an estimated cost of Rs. 273.84          D
Lakhs. The contract provided in Clause 2 that time was essence
of the contract and the time allowed for carrying out work as
entered in the tender shall be strictly observed by Contractor.
The Contractor could not maintain the time schedule and the
progress of the work was not observed. The Contractor was
                                                                   E
directed to push up the progress of work but that also it failed
to do. The Contractor was notified that if it failed to take any
action to show requisite progress by 30th of April, 1991, action
against it under Clause 3 of the agreement would be taken. Still
there was no requisite progress in execution of the work by the
                                                                   F
Contractor. On May 8, 1991, the Corporation resorted to action
under Clause 3 of the contract, rescinded the contract and
adopted further course by giving unexecuted work to another
contractor. The disputes, thus, having arisen between the
parties, the Contractor moved the court of Sub Judge, First
Class, Chandigarh, for appointment of the arbitrator in terms      G
of Clause 25A of the contract.

    3. On the application made by the Contractor for
appointment of the arbitrator, the Sub Judge, on May 13, 1992,
ordered that matter in dispute may be referred for arbitration     H
    790     SUPREME COURT REPORTS                 [2012] 4 S.C.R.


A as per Clause 25A of the agreement and, accordingly, as per
  the agreement and the statement of parties, the Sub Judge
  ordered the Chief Engineer of the Corporation to act as an
  arbitrator as provided under Clause 25A of the agreement.
  Both the parties were permitted to file claim and counter claim
B before the arbitrator.

       4. In pursuance of the order dated May 13, 1992, the
  Corporation lodged its claim against the Contractor on June
  15, 1992. The arbitrator - Chief Engineer of the Corporation -
  called upon the Contractor to appear before him on June 25,
C 1992. Thereafter also the arbitrator called upon the Contractor
  to appear before him. The Contractor, however, did not appear
  before the arbitrator and instead sent a letter on June 29, 1992
  intimating him that his appointment as arbitrator was not
  acceptable to it; it did not expect any justice and fair play from
D him and he must refrain from acting as an arbitrator in the case.

        5. Thereafter, on July 24, 1992, the Contractor made an
  application before the Sub Judge, Chandigarh under Sections
  5, 11 and 12 of the Arbitration Act, 1940 (for short, 'the 1940
E Act') for removal of the arbitrator. The Contractor did not appear
  before the arbitrator. Consequently, the arbitrator proceeded
  with the arbitration ex parte and passed the award on August
  18, 1992.

F        6. After filing of the award, the Contractor submitted
    objections under Section 30 of the 1940 Act alleging
    misconduct on the part of the arbitrator and also objected to
    the award being made rule of the court.

       7. The Sub Judge heard the two applications together -
G (i) application made by the Contractor for removal of the
  arbitrator and objections under Section 30, and (ii) application
  for making the award rule of the court - and by a common order
  dated May 8, 1995 dismissed the application made by the
  Contractor for removal of the arbitrator and made the award
H dated August 18, 1992 rule of the court and passed decree in
  LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB                 791
 POLICE HOUSING CORPN. LTD. [R.M. LODHA, J.]
terms thereof.                                                      A

    8. The Contractor challenged the common order dated
May 8, 1995 passed by the Sub Judge, Chandigarh in appeal
before the District Judge, Chandigarh. The District Judge
dismissed the appeal on September 19, 1998.
                                                                    B
     9. Against these two concurrent judgments, the Contractor
filed civil revision before the High Court which too was
dismissed on November 25, 2002. As noted above, it is from
this order that the present Appeal, by special leave, has arisen.
                                                                    c
     10. We have heard Mr. Rajeev Sharma, learned counsel
for the Contractor, and Dr. Bairam Gupta, learned senior
counsel for the respondent Nos. 1 and 2 - Corporation.

      11. Mr. Rajeev Sharma, learned counsel for the Contractor,    D
strenuously urged that the Contractor had reasonable
apprehension of bias on the part of the arbitrator as the action
of cancellation of contract was taken by the Executive Engineer
at the behest of the arbitrator as he was the Chief Engineer of
the Corporation. He referred to the inspection made by the Chief
Engineer along with other Engineers of the Corporation on           E
October 26, 1990 and the opinion formed by the Chief
Engineer on the basis of the inspection that the work was not
being carried out by the Contractor in accord with the time
schedule. He also referred to conduct of the arbitral
proceedings by the arbitrator, particularly concluding the          F
arbitration proceedings in a short span of about 49 days and
that too when the Contractcr's application for his removal was
pending before the Co..irt. In support of his submission that the
arbitrator was biased against the Contractor, the learned
counsel also referred to post arbitral conduct of the arbitrator    G
in contesting the Appeal before this Court and filing counter
affidavit in opposition to the Appeal.

      12. Mr. Rajeev Sharma would highlight two aspects, viz.,
(i) the arbitration agreement was not placed before the             H
    792        SUPREME COURT REPORTS                    [2012] 4 S.C.R.


A arbitrator, yet he commenced and concluded the arbitral
  proceedings, and (ii) the award relating to unutilised amount
  of secured advance which was not claimed by the Corporation
  was passed, to indicate that the arbitrator was biased. In
  support of his submissions, the learned counsel relied upon a
B Constitution Bench judgment of this Court in Gul/apalli
    Nageswara Rao and Others Vs. Andhra Pradesh State Road
    Transport Corporation and Another1 and a judgment of the
    House of Lords in Bristol Corporation Vs. John Aird & Co. 1

      13. Dr. Bairam Gupta, learned senior counsel for the
C Corporation, supported the judgment of the High Court. He
  submitted that only two submissions were made before the
  High Court which have been noted and considered and no
  other point was urged.

D       14. The arbitration clause in the agreement, i.e., Clause
    25A, reads as follows :

          "Clause 25A. Arbitration etc. - If any question, difference
          or objection whatsoever shall arise in any way connected
          with or arising out of this instrument of the meaning of
E
          operation of any part thereof or the rights duties or
          liabilities of either party, then save in so far as the decision
          of any such matter is hereinbefore provided for and has
          been so decided, every such matter including whether its
          decision has been otherwise provided for and/or whether
F         it has been finally decided accordingly, or whether the
          contract should be terminated or has been rightly
          terminated and as regards the rights and obligations of the
          parties as the results of such termination shall be referred
          for arbitration to the Chief Engineer of the Punjab Police
G         Housing Corporation, Chandigarh or acting as such at the
          time of reference within 180 days or in six months from the
          payment of the final bill to the contractor or from the date

    1.   (1959) Supp. (1) SCR 319.
H   1.   (1911-13) All E.R. 1076.
   LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB                   793
  POLICE HOUSING CORPN. LTD. [R.M. LODHA, J.]
      registered notice is sent to the contractor to the effect that   A
      his final bill is ready for payment and his decision shall be
      final and binding and where the matter involves a claim for
      or the payment or recovery or deduction of money, only the
      amount, if any, awarded in such arbitration shall be
      recoverable in respect of the matter so referred."               B

       15. The Contractor consciously agreed for the disputes
  between the parties to be referred for arbitration to the Chief
  Engineer of the Corporation. The Contractor, at the time of
  agreement, was in full knowledge of the fact that the Chief          C
  Engineer is under full control and supervision of all civil
  engineering affairs of the Corporation, yet it agreed for
  resolution of disputes between the parties by him as an
  arbitrator. It is a fact that the Chief Engineer inspected the
  progress of the work given to the Contractor along with other
  engineers of the Corporation on October 26, 1990. In the             D
  course of inspection, the slow progress of the work was brought
  to the notice of the Contractor on that date. There was nothing
  unusual about it and, as a matter of fact, on the contract being
  terminated on May 8, 1991, it was the Contractor who made
  an application for appointment of arbitrator in terms of Clause      E
  25A of the agreement as it was well aware that the inspection
  by the arbitrator did not disqualify him to be arbitrator. In the
  application for appointment of arbitrator, no allegation of any
  bias or hostility was made against the named arbitrator, i.e.,
  Chief Engineer of the Corporation, rather the Contractor prayed      F
  for appointment of arbitrator in terms of the arbitration Clause
  25A. When the application came up for consideration before
  the Sub Judge on May 13, 1992, the advocate appearing for
  the Contractor also submitted for appointment of the arbitrator
· as named in the agreement. Before the Court, no allegation           G
  was made that the contract was terminated at the instance or
  behest of the Chief Engineer. These facts clearly show that no
  case of bias on the part of the Chief Engineer was pleaded or
  pressed by the Contractor before the court in the proceedings
  for appointment of the arbitrator. There is nothing to indicate      H
    794     SUPREME COURT REPORTS                   [2012] 4 S.C.R.


A   that something happened after May 13, 1992 which prompted
    the Contractor to write to the arbitrator on June 29, 1992 that it
    had lost faith in him.

        16. · It is pertinent to notice that on May 13, 1992 while
  referring the disputes between the parties for arbitration as per
8
  Clause 25A of the agreement, the Contractor as well as the
  Corporation were permitted to file claim and counter claim
  before the arbitrator. The Corporation filed its claim against the
  Contractor on June 15, 1992. Upon receipt of the claim by the
C Corporation, the arbitrator called upon the Contractor to appear
  before him on June 25, 1992. The Contractor did not appear
  and instead sent a letter to the arbitrator on June 29, 1992
  intimating him that his appointment as arbitrator was not
  acceptable. No steps were taken by the Contractor for removal
  of the arbitrator immediately. The application for removal of the
D arbitrator was made almost after 26 days. Although the
  Contractor prayed before the Sub Judge for stay of the
  proceedings before the arbitrator but it was not successful in
  getting any such order on July 24, 1992, or on the subsequent
  dates, namely, July 30, 1992, August 3, 1992 and August 6,
E 1992 from the court. In the absence of any stay order from the
  court and non-appearance by the Contractor, the arbitrator was
  left with no choice but to proceed ex parte and conclude the
  arbitral proceedings. Merely because the award came to be
  passed on August 18, 1992, i.e., a day before the next date
F fixed before the Sub Judge, it cannot be said that the arbitrator
  concluded the proceedings hastily or he was biased.

       17. The two aspects highlighted by Mr. Rajeev Sharma,
  learned counsel for the Contractor, regarding (i) non-availability
G of the agreement before the arbitrator, and (ii) the award of
  return of unutilised amount of secured advance by him, as
  grounds of bias have no merit at all.

      18. The order dated May 13, 1992 passed by the Sub
  Judge shows that photocopy of the arbitration agreement was
H produced before the court. AW-1, who was examined by the
 LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB                    795
 POLICE HOUSING CORPN. LTD. [R.M. LODHA, J.)
Corporation, in his deposition before the arbitrator, has stated      A
that photocopy of the agreement was tendered to the arbitrator.
Merely because copy of the agreement was not found by the
District Judge in the record of the arbitral proceedings, it cannot
be assumed that copy of the agreement between the parties
was not placed for consideration before the arbitrator.               8
     19. The arbitrator in his award has awarded interest in the
sum of Rs.1,40,150/- upto December 31, 1991 on the amount
of secured advance paid to the Contractor for the period the
amount remained unutilised although the Corporation had
claimed the interest on that count in the sum of Rs. 1,69,878/-.      C
With regard to award of unutilised amount of secured advance,
the arbitrator observed in the award that the exact amount of
award will depend upon the actual unutilised amount of secured
advance till realisation. On ascertaining the total amount of
unutilised secured advance, it was found to be Rs.                    D
9,63,635.25/-.

    20. The District Judge in the appeal preferred by the
Contractor in challenging the judgment and decree held in para
21 of the judgment thus :-                                            E

     " .... In it unutilised advance of Public Health items as per
     statement at page 243 of the arbitrator file is Rs.
     5,85,423. 75ps. The statement of this witness dated
     14.8.1992 with statement of interest and principal of the
     unutilised secured advance of building component is at           F
     pages 283-289 of the arbitration file in which unutilised
     secured advance of building component is mentioned as
     Rs. 3,73,211.50ps. So tne total unutilised secured advance
     on both the counts comes to Rs. 9,63,635.25ps. The
     maxim is,"Certum est quod, certum reddi potest". (certain        G
     is that which can be made certain). Now, from the perusal
     of the record of the total unutilised secured advance can
     be ascertained as Rs. 9,63,635.25ps. Similarly, from the
     record, the principal amount of the secured advance can
     also be calculated and on it, interest on the amount of the      H
    796       SUPREME COURT REPORTS                   [2012] 4 S.C.R.


A         secured advance paid to the appellant for the period the
          amount remain unutilised could be calculated. The
          appellant has not been able to point out that the calculation
          of this amount as Rs. 1,40,150/- upto 31.12.1991 was
          wrong or incorrect. Therefore, it would be narve to contend
8         that the award was vague, evasive or non-committal."

       21. The above finding of the District Judge, Chandigarh,
  was not challenged by the Contractor before the High Court as
  is apparent from the impugned order. Thus, there is no merit,
  at all, in the submission of the learned counsel for the
C Contractor that the arbitrator awarded unutilised secured
  advance for which there was no claim. In any case, this hardly
  leads to any inference of bias of the arbitrator.

       22. In Gu//apalli Nageswara Rao and Others (supra) this
o Court restated the principle of natural justice that the authority
  empowered to decide the dispute must be one without bias
  towards one side or the other in the dispute. There can hardly
  be any doubt about this fundamental principle of natural justice.
  The question is - Whether on facts, the Contractor has been
E able to establish that the arbitrator was biased against it ?
  None of the circumstances pointed out by the Contractor leads
  to any inference that the arbitrator had any bias, personal or
  otherwise. No doubt, bias may be found in variety of situations
  and each case, where bias of adjudicator is alleged, has to be
F seen in the context of its own facts but a fanciful apprehension
  of bias is not enough.

       23. The observations of the Lord Atkinson in Bristol
  Corporation (supra), relied upon by the learned counsel for the
  Contractor, instead of supporting his argument, go fully against
G the Contractor. In Bristol Corporation (supra) Lord Atkinson
  stated thus :

          "... If a contractor chooses to enter into a contract binding
          him to submit any disputes which arise between him and
H         the engineer of the persons with whom he contracts to that
   LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB                  797
  POLICE HOUSING CORPN. LTD. [R.M. LODHA, J.]
     engineer to arbitrate on, then he must be held to his            A
     contract; whether it be wise or unwise, prudent or the
     contrary, he stipulated that a person who is the servant of
     the persons with whom he contracted shall be the judge
     to decide upon matters upon which, necessarily, that
     engineer or arbitrator has himself formed an opinion. But        B
     though the contractor is bound by that contract, still he has
     a right to demand that, notwithstanding those pre-formed
     views of the engineer, that gentleman should listen to
     argument, and should determine the matters submitted to
     him as fairly as he can, as an honest man; and if it be          c
     shown in fact that there is any reasonable prospect that
     he will be so biased as not to decide fairly upon those
     matters, then the contractor is allowed to escape from his
     bargain, and to have the matters in dispute tried by one
     of the ordinary tribunals of the land. But he has more than      D
     that right. If, without any fault of his own, the engineer has
     put himself in such a position that it is not fitting, or
     decorous, or proper that he should act as arbitrator in any
     one or more of those disputes, the contractor has the right
     of appealing to a court of law to exercise the discretion        E
     which s. 4 of the Arbitration Act vests in them .... "

      24. The above observations exposit the legal position that
a contractor is bound by the contract if he has agreed to submit
the disputes to the engineer for arbitration although he has to
deal with such engineer under the contract. It needs no               F
emphasis that once the dispute is referred to such arbitrator,
the arbitrator has to act fairly and objectively and the
proceedings must meet the requirements of principles of natural
justice.
                                                                      G
    25. Insofar as the facts of the present case are concerned,
the Contractor moved the court for appointment of the Chief
Engineer as arbitrator and then chose not to appear before him.
What was the intervening event after the arbitrator was
appointed at his instance that prompted him to ask the                H
    798      SUPREME COURT REPORTS                     [2012] 4 S.C.R.

A   arbitrator to recuse is not stated by the Contractor. The
    Contractor was not successful in getting any final or interim
    order in the proceedings initiated by it for removal of the
    arbitrator. The award passed by the arbitrator also does not
    show that he misconducted in any manner in the proceedings.
B   He gave full opportunity to the Contractor to appear and put
    forth its case but the Contractor failed to avail of that opportunity.

      26. There is no justifiable circumstance on record that
  enables the Contractor to escape from the bargain that it made
C under the contract and have the disputes resolved through the
  process other than agreed.

       27. In The Secretary to the Government, Transport Deptt.,
    Madras Vs. Munuswamy Muda/iar and Others 3 , this Court
    stated:-
D
          "11 ... When the parties entered into the contract, the
          parties knew the terms of the contract including arbitration
          clause. The parties knew the scheme and the fact that the
          Chief Engineer is superior and the Superintending
          Engineer is subordinate to the Chief Engineer of the
E
          particular circle. In spite of that the parties agreed and
          entered into arbitration and indeed submitted to the
          jurisdiction of the Superintending Engineer at that time to
          begin with, who, however, could not complete the
          arbitration because he was transferred and succeeded by
F
          a successor. In those circumstances on the facts stated
          no bias can reasonably be apprehended and made a
          ground for removal of a named arbitrator. In our opinion
          this cannot be, at all, a good or valid legal ground. Unless
          there is allegation against the named arbitrator either
G         against his honesty or capacity or malafide or interest in
          the subject-matter or reasonable apprehension of the bias,
          a named and agreed arbitrator cannot and should not be
          removed in exercise of a discretion vested in the Courts

H   3.   AIR 1988 SC 2232.
 LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB               799
POLICE HOUSING CORPN. LTD. [R.M. LODHA, J.)
  under S. 5 of the Act.                                         A

  12. Reasonable apprehension of bias in the mind of a
  reasonable man can be a ground for removal of the
  arbitrator. A predisposition to decide for or against one
  party, without proper regard to the true merits of the         B
  disputes is bias. There must be reasonable apprehension
  of that predisposition. The reasonable apprehension must
  be based on cogent materials. See the observations of
  Mustill and Boyd, Commercial Arbitration, 1982 Edition,
  page 214. Halsbury's Laws of England, Fourth Edition,          C
  Volume 2, para 551, page 282 describe that the test for
  bias is whether a reasonable intelligent man, fully apprised
  of all the circumstances, would feel a serious apprehension
  of bias.

 13. This Court in International Airport Authority of India D
 v. K.D.Bali, (1988) 2 JT 1 : (AIR 1988 SC 1099) held that
 there must be reasonable evidence to satisfy that there was
 a real likelihood of bias. Vague suspicions of whimsical,
 capricious and unreasonable people should not be made
 the standard to regulate normal human conduct. In this E
 country in numerous contracts with the Government,
 clauses requiring the Superintending Engineer or some
 official of the Govt. to be the arbitrator are there. It cannot
 be said that the Superintending Engineer, as such, cannot
 be entrusted with the work of arbitration and that an F
 apprehension, simpliciter in the mind of the contractor
 without any tangible ground, would be a justification for
 removal. No other ground for the alleged apprehension
 was indicated in the pleadings before the learned Judge
 or the decision of the learned Judge. There was, in our
 opinion, no ground for removal of the arbitrator. Mere G
 imagination of a ground cannot be an excuse for
 apprehending bias in the mind of the chosen arbitrator."


                                                                 H
    800       SUPREME COURT REPORTS                   [2012] 4 S.C.R.


A       28. In S. Rajan Vs. State of Kera/a and another", this
    Court stated :-

          "12 .... Thus, this is a case where the agreement itself
          specifies and names the arbitrator. It is the Superintending
          Engineer, Buildings and Roads Circle, Trivandrum. In such
B
          a situation, it was obligatory upon the learned Subordinate
          Judge, in case he was satisfied that the dispute ought to
          be referred to the arbitrator, to refer the dispute to the
          arbitrator specified in the agreement. It was not open to
          him to ignore the said clause of the agreement and to
c         appoint another person as an arbitrator. Only if the
          arbitrator specified and named in the agreement refuses
          or fails to act the Court does get the jurisdiction to appoint
          another person or persons as the arbitrator. This is the
          clear purport of Sub-section (4). It says that the reference
D         shall be to the arbitrator appointed by the parties ... "

       29. Where parties enter into a contract knowing the role,
  authority or power of the Chief Engineer in the affairs relating
  to the contract but nevertheless agree for him to be arbitrator
E and name him in the agreement to adjudicate the dispute/s
  between the parties, then they stand bound by it unless a good
  or valid legal ground is made out for his exclusion.

       30. Except raising the vague and general objections that
  the arbitrator was biased and had predisposition to decide
F against the Contractor, no materials, much less cogent
  materials, have been placed by the Contractor to show bias of
  the arbitrator. No sufficient reason appears on record as to why
  the arbitrator should not have proceeded with the arbitral
  proceedings. The test of reasonable apprehension of bias in
G the mind of a reasonable man is not satisfied in the factual
  situation.

        31. We may now deal with the submission of the learned
    counsel for the Contractor that bias on the part of the arbitrator
H 4. AIR 1992 SC 1918.
  LADLI CONSTRUCTION CO. (P) LTD. v. PUNJAB                   801
 POLICE HOUSING CORPN. LTD. [R.M. LODHA, J.]
is also reflected from the fact that he has contested the present    A
Appeal and filed the affidavit in opposition. What would have
the arbitrator done when he has been personally impleaded as
respondent in the Appeal and the allegations of bias have been
made against him. He was left with no choice but to rebut the
allegations by filing his affidavit. The arbitrator did what any     B
other person in his place would have done in the circumstances.

     32. The view taken by the High Court does not suffer from
any infirmity justifying interference by us in our jurisdiction in
appeal under Article 136 of the Constitution of India.
                                                                     c
     33. Civil Appeal is dismissed with no order as to costs.

B.B.B.                                       Appeal dismissed.




                                                                     ,,.
                                                                     (     )